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BLS Jobs Report Covering August 2012: Some Sound and Fury but Mostly Nothing

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The big number is that unemployment dropped two-tenths of a percent from 8.3% to 8.1%. However, the illusory nature of this drop can be seen in the fact that the number of jobs increased only 96,000. Essentially, what happened is that the unemployment rate declined, not because people found jobs but because the BLS defined them out of the labor force. Both of these numbers are seasonally adjusted.

In revisions of jobs numbers from the previous two months, June was revised down 19,000 from 64,000 to 45,000. It had originally been reported at 80,000, already a weak number, in the July report. The good, not great, number of 163,000 for July was decreased by 22,000 to 141,000. So a downward adjustment of 41,000 overall.

Before beginning, I should note that I look at both seasonally adjusted and unadjusted data. The official numbers the most cited are seasonally adjusted. Seasonal adjustment is a smoothing of the data flattening out the hills and valleys of employment and jobs over the course of the year. However, employment and jobs (which are not the same thing and come from two different surveys) are seasonal. So if you want to know who actually is employed and what jobs are doing, you need to look at the unadjusted numbers.

With that, the potential labor force as represented by the non-institutional population over 16 (which is never seasonally adjusted) or NIP increased 212,000 from 243.354 million to 243.566 million. Multiplying this by the employment-population ratio (58.3% seasonally adjusted) gives us 124,000 an estimate of the number of jobs needed to keep up with population growth in August. So you can see immediately that the 96,000 jobs reported created in August (seasonally adjusted) did not even keep up with population growth.

Looking at the Household data (people), in August, the labor force (employed + those defined as unemployed, no job but looked for one in the 4 weeks before the survey was conducted), declined 368,000 from 155.013 million to 154.645 million (seasonally adjusted). This is a strongly negative number. Last year in 2011, for example, the labor force grew 316,000 July-August (seasonally adjusted); in 2010, it grew 325,000.

This negativity is magnified in the unadjusted number. Unadjusted, the labor force contracted 1.271 million from 156.526 million to 155.255 million, compared to seasonal contractions of 468,000 in 2011 and 592,000 in 2010.

These declined are directly reflected in the participation rate (which is the ratio of actual labor force to the potential labor force or NIP). Seasonally adjusted, the participation rate declined two-tenths of a percent to 63.5% and cliff dived four-tenths of a percent to 63.7% unadjusted.

In August, the number of employed seasonally adjusted decreased 119,000 from 142.220 million to 142.101 million versus increases of 304,000 in 2011 and 199,000 in 2010.

As we already know from the fall in the U-3 or official unemployment rate, the number of unemployed decreased in August 250,000 from 12.794 million to 12.544 million, seasonally adjusted.

Unadjusted, the number of unemployed fell off 704,000.

Now normally a decline in the number of unemployed would be a good thing, but not when the number of employed also falls. In that case, the sum of these two or the decline in the size of the labor force represents, not people who left the labor force, but people the BLS defined out of it. This illustrates the central flaw in the way the BLS approaches its work. These people defined out of the labor force did not stop needing a job. They stopped looking for one.

In August, the U-6, the BLS' broader measure of un- and underemployment, decreased seasonally adjusted 0.3% to 14.7%.

The seasonally adjusted U-6 rate (14.7%) represents 23.136 million people and reflects the 12.544 million of the U-3 unemployed seasonally adjusted, 8.031 million involuntary part-time workers (down 215,000 from July), and 2.561 million marginally attached to the labor force (up 32,000; these have looked for work in the last year but not in the last month). This is the number Romney has been citing recently.

The BLS measure of its undercount, those it defines as not in the labor force who want work but have not looked for work in the last month (seasonally unadjusted) increased 194,000 in August from 6.837 million to 7.031 million. Now remember unadjusted the labor force decreased by 1.271 million. This was more than twice the usual seasonal contraction. Are we really to believe that some 400,000-500,000 extra people this year decided they no longer wanted a job?

This kind of discrepancy is a prime reason I have developed an alternate calculation to measure the BLS undercount. In my alternate calculation, I compare the current labor force to where we would expect it to be in a solid economic expansion: labor participation rate of 67%. The difference between these two is my measure of the undercount.

The U-3 long term unemployed (those unemployed for more than 6 months and who have looked for work in the last month) decreased 152,000 to 5.033 million. The long term unemployed are 40% of the unemployed (seasonally adjusted). This figure is vastly understated because it does not take into account millions long term out of a job in the undercount.

In unemployment by race, overall unemployment among whites declined two-tenths of a percent to 7.2% with male over 20 unemployment decreasing 0.1% to 6.8%; female over 20 unemployment decreasing 0.3% to 6.5%; and teen unemployment both sexes increasing 1.3% to 22.8%.

African American unemployment was unchange at 14.1% with African American male over 20 unemployment decreasing 0.5% to 14.3%; African American female over 20 unemployment increasing 0.5% from 11.5% to 12%; and African American teen unemployment both sexes increasing 1.3% to 37.9%. Overall the African American unemployment rate (U-3 seasonally adjusted) remains about twice that of whites.

Turning to the Establishment survey, 96,000 nonfarm jobs seasonally adjusted (SA) were added in August bringing the total to 133.330 million. This is in keeping with last year's number of 85,000. Private employers added 103,000 jobs and government lost 7,000. Most of the jobs added were in the low quality job category: food services, professional and technical services, and ambulatory care. Manufacturing lost 15,000 jobs.

Unadjusted (NSA), 252,000 were added, as compared with 135,000 in 2011 and 159,000 in 2010.

Average weekly hours for all private workers were unchanged at 34.4 hours. Average hourly earnings decreased one cent to $23.52 and average weekly earnings declined 34 cents to $809.09.

Echoing this, average weekly hours for production and nonsupervisory (blue collar) workers were unchanged at 33.7 hours. Average hourly earnings decreased one cent to $19.75, and average weekly earnings declined 33 cents to $665.58.

This continues the trend of slow erosion in workers' wages.

Overall, this is another nothing to slightly worsening report. Real unemployment hit 21 million and edged up to 12.9%. Real disemployment remained unchanged at 17.8% with the increase in the unemployed offset by a decrease in involuntary part timers. Wages and hours went nowhere, and the number of jobs created seasonally adjusted did not keep up with population growth. The one ray of sunshine is that the number of jobs created seasonally unadjusted was a good 252,000, although the quality of these jobs was not good. But even this is conditioned because the two surveys on which the BLS report was based were at odds.

Household data (Employment/unemployment)
Statistical significance: +/ - 400,000
The A tables: http://www.bls.gov/cps/cpsatabs.htm
A 1 for most information and categories
A 2 Unemployment by race
A 8 Part time workers
A 12 Duration of unemployment
A 15 U 6 un- and under employment
A 16 Persons not in labor force

The participation rate was 63.5% in August seasonally adjusted. The last time it was this low was indeed in September 1981. This is the kind of datum you can read off the A 1 table.

My calculation of the undercount is a measure of how many people the drop in the participation rate represents, that is the difference between a 67% participation rate such as we had for 45 months between 1996 and 2000 and what we currently have. So the current 63.5% rate stands for some 8.5 million people the BLS has arbitrarily defined out of the labor force. These are people who would be working if jobs were available to them.

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